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Ask An Economist: How to lower inflation
US inflation is now at a 40-year high. So, what are we going to do about it?
That depends on where you think the problem is coming from, American economist and University of Chicago professor Austan Goolsbee says on GZERO World with Ian Bremmer.
If inflation is being driven by too much stimulus, like some economists such as Larry Summers believe, Goolsbee believes the Federal Reserve is doing the right thing by raising interest rates to cool demand. But if inflation is mostly due to the war in Ukraine or supply chain disruptions, rate hikes might result in stagflation.
"I think if we get a couple [...] more months like the ones we just saw [...] they're gonna be consulting the ghost of Paul Volcker," Golsbee says, referring to the former Fed chair who in the early 1980s triggered two recessions by upping interest rates to double digits in order to tame inflation.
What about risking more unemployment, like Summers has suggested? That would mean "a lot of pain for millions of people."
Watch the GZERO World episode: Explaining inflation & what's next for the US economy
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Trump & Biden spent too much on COVID stimulus, says Austan Goolsbee
The brief recession the US economy experienced during the pandemic was arguably the weirdest one ever.
Why? Because it was "an unprecedentedly steep downturn [followed by] an unprecedentedly rapid comeback," says economist and University of Chicago professor Austan Goolsbee tells Ian Bremmer on GZERO World.
What's more, that recession was driven by less demand for theoretically recession-proof services instead of stuff like goods and real estate.
And then there was the government response.
Goolsbee believes that President Joe Biden made the mistake of spending too much on the recovery to avoid the mistake of doing too little under the Obama administration. His take on the American Rescue Plan: "You would probably do smaller."
Watch the GZERO World episode: Explaining inflation & what's next for the US economy
When high inflation meets high job rates
We live in odd economic times.
Polls show Americans now feeling so glum about the economy, yet okay about their individual finances?
Why? It's the unemployment, stupid, economist and University of Chicago professor Austan Goolsbee tells Ian Bremmer on GZERO World.
Although real incomes have dropped due to high inflation, most Americans still have jobs, and many didn't take a big hit in their bank accounts — in part because the American Rescue Plan netted households an average of a $3,500 in tax cuts.
Watch the GZERO World episode: Explaining inflation & what's next for the US economy
Power to the workers? What historical trends suggest about newfound employee influence
During the initial stages of COVID, Americans responded to shortages of basic items by making them domestically.
That's a blip that'll likely end once the economy (really) goes back to normal, says economist and University of Chicago professor Austan Goolsbee.
"Why," he asks Ian Bremmer on GZERO World, "do we have a giant warehouse full of socks that we made here that we could buy on the open market for one third the price, and we could just have shipped here when we need them?"
The same can be said of workers having more bargaining power with corporations. Goolsbee believes that sooner or later employers will regain the upper hand, while remote work will come with strings attached.
Watch the GZERO World episode: Explaining inflation & what's next for the US economy
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Listen: Did US inflation come from supply, or did it come from demand? On the GZERO World podcast, Ian Bremmer speaks with economist and University of Chicago professor Austan Goolsbee about the causes of the current high levels of inflation in the US and around the world. If inflation is being driven by too much stimulus, as economists like Larry Summers believe, Goolsbee believes the Federal Reserve is doing the right thing by raising interest rates to cool demand. But if inflation is mostly due to the war in Ukraine or supply chain disruptions, rate hikes might result in stagflation.
Goolsbee, who served as an adviser under President Obama, also shares his thoughts on why some economic trends from the last two years - like making more products domestically and remote work - may be short-lived "pandemic blips," whether the Biden administration gave out too much stimulus for the recovery, and why Americans feel glum about the economy - yet still have cash in their pockets.
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